WEBVTT - Daybreak Holiday: Inflation Pressure, Markets, Retail 0:00:02.360 --> 0:00:04.560 Thank you so much for joining us on the special 0:00:04.720 --> 0:00:08.760 edition of Bloomberg Daybreak. Merry Christmas, everybody. Markets are closed 0:00:08.800 --> 0:00:12.160 for this holiday. I'm Nathan Hager coming up this hour. 0:00:12.360 --> 0:00:14.800 It has been another banner year for the bulls on 0:00:14.880 --> 0:00:17.280 Wall Street. Will the new year bring as many happy 0:00:17.320 --> 0:00:20.400 returns for equity investors as twenty twenty four We will 0:00:20.400 --> 0:00:23.680 bring you a special stock round table with Lori Calvacina, 0:00:23.720 --> 0:00:26.960 head of US Equity Strategy at RBC Capital Markets, and 0:00:27.040 --> 0:00:30.880 Cameron Dawson, chief investment officer at New Edge Wealth Plus. 0:00:30.880 --> 0:00:33.120 We're wrapping up the most wonderful time of the year 0:00:33.159 --> 0:00:36.280 for retailers, So who were the big winners? We'll ask 0:00:36.320 --> 0:00:41.640 retail analyst Bert Flickinger, managing director at Strategic Resource Group. First, 0:00:41.680 --> 0:00:44.280 we want to focus on the economy as a whole. 0:00:44.479 --> 0:00:47.240 The Federal Reserve is coming off its final rate cut 0:00:47.240 --> 0:00:50.760 of the year. J. Powell and Company surprised Wall Street 0:00:50.800 --> 0:00:53.720 not with the interest rate reduction, but when they changed 0:00:53.760 --> 0:00:58.040 gears and put their policy focus back on inflation once again. 0:00:58.280 --> 0:01:00.960 We you know, we've had a a year on projection 0:01:01.480 --> 0:01:03.880 for inflation and it's kind of fallen apart. As we've 0:01:03.920 --> 0:01:06.920 approached at the end of the year. So that is 0:01:06.959 --> 0:01:09.680 certainly a large factor in people's thinking. I can tell 0:01:09.680 --> 0:01:12.399 you that might be the single biggest factor. Is inflation 0:01:12.480 --> 0:01:17.039 has once again underperformed relative to expectations. It's still you know, 0:01:17.200 --> 0:01:19.440 going to be between two and a half and three. 0:01:19.480 --> 0:01:21.560 It's way below where it was. But you know, we 0:01:21.600 --> 0:01:24.720 really want to see progress on inflation. 0:01:24.760 --> 0:01:27.600 And that was fair Chair J. Powell last week following 0:01:27.640 --> 0:01:31.039 the Central Banks final policy decision of twenty twenty four. 0:01:31.280 --> 0:01:34.600 So what's in store for next year? To answer that, 0:01:34.680 --> 0:01:38.200 we're pleased to welcome Tom Porcelli, chief US economist at 0:01:38.280 --> 0:01:41.680 PGIM Fixed Income. Tom. Great to have you with us 0:01:41.920 --> 0:01:46.000 on this holiday. And I hate to say inflation's been persistent, 0:01:46.160 --> 0:01:49.080 but are we going to see progress? 0:01:49.360 --> 0:01:52.200 Well, good to be with you, Nathan as always, and 0:01:53.000 --> 0:01:55.560 I think, you know, let'st I would reframe it a 0:01:55.600 --> 0:01:58.360 little bit. We have seen a lot of progress. I mean, 0:01:58.400 --> 0:02:00.480 if you just look at you know, a pick your 0:02:00.520 --> 0:02:04.480 flavor of inflation, but if you just look at core PCEE, 0:02:05.000 --> 0:02:07.280 core PC with what as high as nearly six percent 0:02:07.440 --> 0:02:10.120 and we're down to what two point eight percent now, 0:02:10.200 --> 0:02:12.400 So there's been quite a lot of progress from an 0:02:12.440 --> 0:02:16.320 inflation perspective. And you know what was interesting about about 0:02:16.320 --> 0:02:19.920 Powell's press conference at the recent FOMC meeting was he 0:02:20.000 --> 0:02:23.400 acknowledged I think a number of the things that that 0:02:23.560 --> 0:02:27.280 are challenges from inflation perspective that we can exclude from inflation, right, Like, 0:02:27.320 --> 0:02:30.239 so shelter is a great example. You know, they they 0:02:30.320 --> 0:02:34.360 and we all recognize that there are these calculation challenges 0:02:34.400 --> 0:02:37.440 from a shelter perspective, so you remove it, and you know, 0:02:37.480 --> 0:02:39.760 this is how the whole supercre idea sort of came 0:02:39.880 --> 0:02:42.440 came to be. Well, what I would say is I'm 0:02:42.480 --> 0:02:44.400 not a huge fan of supercore because I think it 0:02:44.440 --> 0:02:46.679 also strips out the things that are deflating. And I 0:02:46.720 --> 0:02:49.520 don't know why you do. That's part of the consumable basket, 0:02:50.000 --> 0:02:54.120 So that that to me just seems a little intellectually disingenuous. 0:02:54.280 --> 0:02:57.079 So what I would say is this, just take headline inflation, 0:02:57.520 --> 0:03:00.800 take core inflation, strip out shelter, and when you do that, 0:03:00.800 --> 0:03:02.639 what you see is that inflation is actually pretty tame. 0:03:02.720 --> 0:03:02.840 Right. 0:03:02.840 --> 0:03:05.280 So if we just use CPI as as an example 0:03:05.320 --> 0:03:08.560 of that, you know, like headline CPI is running out 0:03:08.560 --> 0:03:12.600 well one point six percent pace x shelter and core 0:03:12.720 --> 0:03:15.760 CPI is running out a two point one percent pace 0:03:16.000 --> 0:03:16.440 x shelter. 0:03:16.600 --> 0:03:17.800 So you know, I. 0:03:19.320 --> 0:03:21.480 Was, I was, I was a little bothered by by 0:03:21.520 --> 0:03:24.519 the idea of this notion of sticky inflation. I mean, 0:03:24.560 --> 0:03:26.680 I think I think a lot of us expected inflation 0:03:26.720 --> 0:03:30.440 would remain relatively elevated relative to target, but we continue 0:03:30.480 --> 0:03:32.600 to drift in the right direction. And I'm sorry, I'll 0:03:32.600 --> 0:03:34.280 say one last thing on this, Nathan, and then and 0:03:34.320 --> 0:03:37.040 then I'll stop. You know, I think about not just 0:03:37.080 --> 0:03:40.040 the not just the idea of of of stripping out shelter, 0:03:40.280 --> 0:03:45.200 but let's acknowledge that in real time shelter prices are slowing, 0:03:45.280 --> 0:03:48.440 so that will will continue to act as a sort 0:03:48.440 --> 0:03:50.760 of a as a weight on inflation as that continues 0:03:50.760 --> 0:03:53.560 to slow down. But maybe more important, when I look 0:03:53.600 --> 0:03:56.760 at wages, the direction of travel for wages I think 0:03:56.840 --> 0:03:58.880 is pretty clear. I mean, just look at quit rates 0:03:59.240 --> 0:04:02.440 that that are, you know, sort of getting clobbered. You know, 0:04:02.680 --> 0:04:05.160 that's that's yet another factor that I think we do 0:04:05.280 --> 0:04:08.440 not have to worry about because wages will continue to slow. 0:04:08.520 --> 0:04:11.120 So I think the inflation story is is is at 0:04:11.200 --> 0:04:14.160 least a bit more benign than what Powell suggested, So. 0:04:14.160 --> 0:04:17.040 Are you thinking then that the Fed could be more 0:04:17.120 --> 0:04:21.160 open to accelerating the pace of rate cuts more than 0:04:21.200 --> 0:04:24.279 they said they were planning to last week when they 0:04:24.839 --> 0:04:27.839 surprised the market with this expectation of just two cuts 0:04:27.839 --> 0:04:28.760 for all of next year. 0:04:29.600 --> 0:04:31.160 Yeah. I think this is the one thing that I 0:04:31.240 --> 0:04:34.400 actually did agree with Powell on. I think that, you know, look, 0:04:34.880 --> 0:04:37.960 as as a as a central banker, you know, you 0:04:37.960 --> 0:04:41.080 you relish optionality and and and I think you're and 0:04:41.120 --> 0:04:44.520 you're supposed to because you want the flexibility to be 0:04:44.520 --> 0:04:48.839 able to adjust as as the backdrop sort of evolved. 0:04:48.880 --> 0:04:51.440 So I have a ton of sympathy for that. So 0:04:51.520 --> 0:04:55.080 the short answer is, yes, I think you're you're absolutely 0:04:55.080 --> 0:04:58.080 supposed to acknowledge that you could see a faster pace 0:04:58.200 --> 0:05:00.279 of of rate cuts and and and indeed you could 0:05:00.279 --> 0:05:02.600 certainly see a slower pace depending how the data evolved. 0:05:02.960 --> 0:05:05.440 But I think again the problem for me is he 0:05:05.520 --> 0:05:08.520 kept on, pal kept on talking about, you know, data dependency, 0:05:08.960 --> 0:05:12.039 but I don't know if that's quite what it is. 0:05:12.680 --> 0:05:15.160 And I don't want to split hairs on this, but 0:05:15.240 --> 0:05:19.520 it really strikes me more as data point dependency, and 0:05:19.560 --> 0:05:21.920 that to me is a problem. And it's a problem 0:05:22.000 --> 0:05:24.360 because we all know this, right, I mean, we could 0:05:24.360 --> 0:05:26.400 all we could do an entire segment on this from 0:05:26.600 --> 0:05:30.119 one point alone. The data have been very volatile, more 0:05:30.680 --> 0:05:34.039 so than than what we've seen certainly pre pre COVID. 0:05:34.760 --> 0:05:37.159 And so think about the coming you know, in the 0:05:37.200 --> 0:05:40.040 next couple of weeks, we're gonna get what, We're gonna 0:05:40.040 --> 0:05:41.400 get a payroll report, and then we're going to get 0:05:41.400 --> 0:05:43.880 a CPI report. What if you get a clunker, right, 0:05:43.920 --> 0:05:46.000 what if you get a clunker of a payroll report, 0:05:46.640 --> 0:05:49.120 the market is then going to immediately start to sort 0:05:49.120 --> 0:05:51.280 of build in the idea of, oh well maybe if 0:05:51.320 --> 0:05:52.760 it is going to have to do more. So I 0:05:52.839 --> 0:05:54.440 think this is this is part of the problem with 0:05:54.520 --> 0:05:55.520 data point dependency. 0:05:55.960 --> 0:06:01.080 Speaking with Tom Porcelli, chief US economist at PGM Fixed Income, 0:06:01.680 --> 0:06:04.160 So what should the FED be focusing on then, Tom, 0:06:04.200 --> 0:06:06.560 I mean, at the meeting last week it seemed as 0:06:06.600 --> 0:06:10.800 though FED Chair pal was really laser focused now on 0:06:10.960 --> 0:06:15.680 inflation as opposed to potential risks to the labor market. 0:06:15.800 --> 0:06:18.000 Should be they be taking a more holistic approach. 0:06:19.160 --> 0:06:22.240 I think that's exactly right. I mean, look, they are 0:06:22.400 --> 0:06:25.599 a dual mandate Central bank, I think that you're supposed 0:06:25.640 --> 0:06:29.120 to be focused on both of these. Now, both of 0:06:29.160 --> 0:06:31.000 these are parts of the mandate. Now, of course, we 0:06:31.080 --> 0:06:34.640 all recognize that there are points where you know one 0:06:34.680 --> 0:06:36.479 will be fine and the other will be, you know, 0:06:36.800 --> 0:06:39.560 sort of deteriorating or accelerating, and so you know, you 0:06:39.600 --> 0:06:41.600 might want to sort of shift your focus to some extent. 0:06:42.000 --> 0:06:45.160 But I think what we have to acknowledge is that 0:06:45.520 --> 0:06:48.560 from a labor market perspective, right, because it's clear that 0:06:48.600 --> 0:06:50.920 he is shifted, right, he's starting the process of shifting 0:06:50.920 --> 0:06:52.719 away from labor, which is what they had been focused 0:06:52.760 --> 0:06:55.520 on over the prior few meetings, which is why they've 0:06:55.560 --> 0:06:59.800 delivered one hundred basis points of cuts at this point. 0:07:00.320 --> 0:07:03.719 But it's pretty clear that they're shifting back toward inflation. Now, 0:07:04.480 --> 0:07:08.400 I would caution against doing that too forcefully, because what 0:07:08.800 --> 0:07:11.360 we know is that there are some cracks that are 0:07:11.360 --> 0:07:13.640 forming in the labor backdrop. Now, again, I would hasten 0:07:13.680 --> 0:07:17.160 to add just because I'm saying cracks does not mean 0:07:17.160 --> 0:07:18.480 that I think the floor is going to fall out 0:07:18.520 --> 0:07:20.360 from from beneath labor. In fact, I don't think that's 0:07:20.360 --> 0:07:21.520 going to be the case at all. I think labor 0:07:21.560 --> 0:07:24.240 will be fine. I mean, you know, the continued economic 0:07:24.280 --> 0:07:27.960 expansion is is and has been our call over the 0:07:28.000 --> 0:07:30.840 coming and for the coming year, So you know, I 0:07:30.840 --> 0:07:32.920 want to sort of level set for everyone on that. 0:07:33.000 --> 0:07:37.320 But that does not, you know, mean that we should 0:07:37.320 --> 0:07:40.360 take our eyes off the fact that quit rate is 0:07:42.520 --> 0:07:48.440 getting cloppered, the hiring rate is slowing down. Confidence toward 0:07:49.480 --> 0:07:55.080 labor has deteriorated, right per the Conference boards labor differential, 0:07:55.520 --> 0:07:58.920 and that has a very good relationship with the unemployment rate, 0:07:59.080 --> 0:08:01.760 which is up what amost a hundred basis points from 0:08:01.840 --> 0:08:04.480 from the nearby low. So so you know, these are 0:08:04.480 --> 0:08:07.520 our realities. I mean, labor has slowed down. Demand at 0:08:07.600 --> 0:08:10.280 large has really slowed down. So I don't think we 0:08:10.280 --> 0:08:12.320 should take our eye and I don't think the Fed should, 0:08:12.360 --> 0:08:14.400 and I don't think that they will take their eye 0:08:14.440 --> 0:08:18.920 off of labor. I just think that shifting these focuses 0:08:19.000 --> 0:08:21.080 from like one mandate to the other, I think just 0:08:21.160 --> 0:08:24.160 lent itself to volatility, particularly as it relates to volatile 0:08:24.320 --> 0:08:26.600 economic reports, which is what we've been getting. 0:08:26.880 --> 0:08:30.760 One potential possibility of volatility here we haven't talked about 0:08:30.880 --> 0:08:35.040 just yet is the incoming Trump administration and how policy 0:08:35.320 --> 0:08:39.120 could affect the economic trajectory going forward, How do you 0:08:39.200 --> 0:08:41.439 factor that in? How does the FED factor that in? 0:08:42.000 --> 0:08:44.079 Yeah, I think I think Powell had it quite right 0:08:44.120 --> 0:08:46.679 when when he said, you know, they just they can't 0:08:46.679 --> 0:08:50.440 build it into their forecasts at this point. And I 0:08:50.440 --> 0:08:53.000 have nothing but sympathy for that. The reality is we 0:08:53.120 --> 0:08:56.240 just don't know what these policies are actually going to be, 0:08:56.480 --> 0:08:59.360 So for better or for worse, you know, the FED 0:08:59.440 --> 0:09:00.920 is going to have to be reactionary. 0:09:01.320 --> 0:09:04.199 How do you expect the FED to react then? Given 0:09:04.240 --> 0:09:07.520 to how what kind of uncertainty we have for Trump 0:09:07.520 --> 0:09:08.600 administration policy? 0:09:09.280 --> 0:09:11.880 Carefully? I mean, I think that you know, we have 0:09:11.960 --> 0:09:16.520 to recognize there are extremes from a tariff perspective and 0:09:16.559 --> 0:09:20.600 from an immigration perspective that could do some damage. From 0:09:20.760 --> 0:09:25.080 from an economic perspective, if you get more modest versions 0:09:25.880 --> 0:09:29.680 of tariff and immigration policy, then it probably you know, 0:09:29.760 --> 0:09:31.640 doesn't turn out to be nearly as bad. 0:09:31.720 --> 0:09:31.880 Right. 0:09:31.920 --> 0:09:35.319 So my view is that I think people are putting 0:09:35.360 --> 0:09:37.240 a little too much emphasis on the negative, and I 0:09:37.240 --> 0:09:39.360 think they're putting a little too much emphasis on the positive. 0:09:40.120 --> 0:09:44.079 And I think ultimately, if we get more modest versions 0:09:44.520 --> 0:09:47.920 of immigration and tariff policy. I think that our view 0:09:48.000 --> 0:09:49.120 that this is going to be you know, sort of 0:09:49.200 --> 0:09:52.760 a roughly two percent year in twenty twenty five, I 0:09:52.760 --> 0:09:54.920 think we'll remain firmly intact. 0:09:55.800 --> 0:09:59.840 Is a two percent inflation target still realistic for this FED? 0:10:00.240 --> 0:10:01.720 I mean I don't know if it was ever really 0:10:01.960 --> 0:10:06.160 totally realistic to I mean just just sort of thinking 0:10:06.200 --> 0:10:09.600 over history. I mean, look, the central banks want an 0:10:09.640 --> 0:10:13.120 anchor and two percent is just the sort of the 0:10:13.600 --> 0:10:16.280 number that they landed on. So in that context, I 0:10:16.360 --> 0:10:19.680 have sympathy for a target. Is this supposed to be 0:10:19.720 --> 0:10:24.360 two point zero percent? That's a completely debatable point. I mean, 0:10:24.360 --> 0:10:28.240 there's nothing empirical that really drives home that two point 0:10:28.360 --> 0:10:30.319 zero percent is the right number. And if you think about, 0:10:30.520 --> 0:10:32.920 you know, where inflation spends most of its time, it's 0:10:32.960 --> 0:10:36.400 not at two point zero percent, So you know, look, 0:10:37.360 --> 0:10:39.360 should the FED go to a range sort of like 0:10:39.400 --> 0:10:42.200 the RBA, the Reserve Bank of Australia like they do. 0:10:42.520 --> 0:10:46.120 I mean, I think that that is a reasonable discussion, 0:10:46.440 --> 0:10:49.199 but the FED has been pretty clear that that's not 0:10:49.280 --> 0:10:51.079 going to be part of any of the debate that's 0:10:51.080 --> 0:10:54.040 happening internally, and two point zero percent is going to 0:10:54.080 --> 0:10:56.120 be the target for the foreseeable future. 0:10:56.800 --> 0:10:59.559 Where do you put FED credibility right now? Given that 0:10:59.720 --> 0:11:03.200 they kicked off the rate cut cycle so quickly slowed 0:11:03.240 --> 0:11:06.040 down just a bit, now we're projecting so much fewer 0:11:06.520 --> 0:11:08.040 rate cuts into next year. 0:11:08.559 --> 0:11:08.839 Yeah. 0:11:08.920 --> 0:11:12.000 I mean, look, I've been speaking with a number of folks, 0:11:12.120 --> 0:11:15.480 you know, post the fom C meeting, and I think 0:11:15.480 --> 0:11:18.120 a lot of them are sort of scratching their head. Okay, 0:11:18.160 --> 0:11:21.040 you know what exactly just happened, and not just at 0:11:21.120 --> 0:11:25.120 the FOC meeting that just passed, but over the last 0:11:25.160 --> 0:11:28.360 few fo C meetings, So you know, is credibility being 0:11:28.480 --> 0:11:31.400 tarnished or dinged up here? No, I don't think that's 0:11:31.400 --> 0:11:35.240 the case. I think the FED has really very very 0:11:35.320 --> 0:11:39.560 much earned the credibility that they do have. But I 0:11:39.600 --> 0:11:42.840 do think people are are are wondering aloud about you know, 0:11:42.960 --> 0:11:46.920 do they have it right? So there's I wouldn't call 0:11:46.960 --> 0:11:49.079 it a crisis of confidence, not by a long shot, 0:11:49.640 --> 0:11:52.679 but I do think people are are wondering if they 0:11:52.720 --> 0:11:53.600 have the right take on this. 0:11:54.040 --> 0:11:56.559 Really appreciate this, Tom, thanks for coming on with us 0:11:56.600 --> 0:11:59.719 on the Christmas holiday. That's Tom Porcelli with us here 0:12:00.240 --> 0:12:05.280 us economist at PGIM Fixed Income. And as we continue 0:12:05.360 --> 0:12:08.640 on the special holiday edition of Bloomberg Daybreak, we're going 0:12:08.640 --> 0:12:11.800 to bring you a special roundtable looking at stocks in 0:12:11.880 --> 0:12:14.960 twenty twenty five. We're going to speak with Lori Calvacina, 0:12:15.120 --> 0:12:19.000 head of US Equity Strategy at RBC Capital Markets, along 0:12:19.000 --> 0:12:22.800 with Cameron Dawson, chief investment officer at New Edge. Well, 0:12:22.920 --> 0:12:25.680 so stay with us. It's twenty minutes past the hour. 0:12:25.920 --> 0:12:41.199 I'm Nathan Hager, and this is Bloomberg. Thanks for being 0:12:41.240 --> 0:12:44.240 here on this special edition of Bloomberg Daybreak. Markets are 0:12:44.280 --> 0:12:47.559 closed for the Christmas holiday. I'm Nathan Hager. We now 0:12:47.600 --> 0:12:50.240 turn from the economy in twenty twenty five. So the 0:12:50.280 --> 0:12:53.440 stock market twenty twenty four has certainly been a good year. 0:12:53.480 --> 0:12:55.880 If you are a bull on Wall Street, will it 0:12:55.960 --> 0:12:59.320 be even more happy returns in the new year. For that, 0:12:59.480 --> 0:13:02.400 we're please welcome two of our favorite analysts on this market, 0:13:02.440 --> 0:13:06.480 Lori Calvacina, head of US Equity Strategy at RBC Capital Markets, 0:13:06.679 --> 0:13:09.920 and New Edge Wealth chief investment officer Cameron Dawson, for 0:13:09.960 --> 0:13:12.840 a holiday stock roundtable. Thanks to both of you for 0:13:12.880 --> 0:13:14.800 being here. I mean, we've had a more than twenty 0:13:14.880 --> 0:13:17.319 percent gain I think for the SMP five hundred year 0:13:17.400 --> 0:13:19.600 to date, I'll start with you, Lourie. Can the market 0:13:19.679 --> 0:13:22.400 keep up that kind of momentum into twenty twenty five? 0:13:23.320 --> 0:13:25.320 So thanks for having me, Nathan, And look, you know, 0:13:25.400 --> 0:13:27.800 I've got a ten percent target on the market for 0:13:27.880 --> 0:13:30.319 twenty twenty five, at least where the market closed when 0:13:30.320 --> 0:13:32.360 we put our numbers out. So we've been looking for 0:13:32.400 --> 0:13:35.040 sixty six hundred, and we think that's going to be 0:13:35.040 --> 0:13:37.800 another solid year of gains in the US eclby market, 0:13:37.880 --> 0:13:40.200 probably a little bit slower than what we saw this year, 0:13:40.559 --> 0:13:42.240 and we do think that we are going to have 0:13:42.320 --> 0:13:45.240 you know, what some of my colleagues term is potholes, right, 0:13:45.320 --> 0:13:48.080 some bounce of five to ten percent type drawdowns. So 0:13:48.120 --> 0:13:50.760 we don't necessarily think it's going to be a completely 0:13:50.800 --> 0:13:52.520 smooth ride. But at the end of the day, we 0:13:52.559 --> 0:13:55.160 think a continued moderation in inflation is going to help 0:13:55.240 --> 0:13:59.320 keep PE multiples elevated, and we think a solid earnings 0:13:59.320 --> 0:14:02.560 grows back and a solid economy are also going to 0:14:02.559 --> 0:14:05.560 help propel this market higher. But there may be some 0:14:05.880 --> 0:14:07.880 volatility here and there that we have to deal with. 0:14:08.160 --> 0:14:10.920 Cameron. We have seen a lot of analysts raise their 0:14:10.960 --> 0:14:14.560 price targets for the SMP five hundred, particularly after the 0:14:14.600 --> 0:14:17.680 election of President elect Donald Trump. Where are you sitting 0:14:17.720 --> 0:14:20.120 at this point. 0:14:19.320 --> 0:14:22.320 Well, it does create an interesting scenario where we're now 0:14:22.440 --> 0:14:26.240 seeing that overall in the market we have stretch positioning, 0:14:26.400 --> 0:14:31.400 stretch sentiments, stretched valuations, as well as pretty lofty growth 0:14:31.440 --> 0:14:35.920 expectations depending on where you're looking at earning vestiments. All 0:14:35.960 --> 0:14:38.440 of those things don't have to be a death knell 0:14:38.520 --> 0:14:42.040 for forward returns. They're usually not good timing tools, but 0:14:42.240 --> 0:14:44.440 it could be that we have to spend some time 0:14:44.640 --> 0:14:48.440 growing into those higher valuations, which lead. 0:14:48.360 --> 0:14:50.160 Us to expect two. 0:14:49.720 --> 0:14:53.160 Distinct scenarios for the market in twenty twenty five. We 0:14:53.160 --> 0:14:55.680 think we're either going to have a talking heads market, 0:14:55.800 --> 0:14:59.080 a road to nowhere kind of sideways chopped that looks 0:14:59.120 --> 0:15:02.560 like twenty fifteen or twenty eighteen, giving us time to 0:15:02.600 --> 0:15:06.720 grow into those high valuations, or we have a prints 0:15:06.720 --> 0:15:09.520 market where we sing, let's go crazy, let's party like 0:15:09.560 --> 0:15:12.240 it's nineteen ninety nine, and we actually have a bubble 0:15:12.280 --> 0:15:15.680 scenario where we have another strong year of returns driven 0:15:15.720 --> 0:15:18.840 by valuation expansion, but of course we know what comes 0:15:18.880 --> 0:15:21.280 on the other side. Of melt ups, which is typically 0:15:21.400 --> 0:15:24.600 melt down. So in either scenario, we think that we 0:15:24.720 --> 0:15:28.040 could have this increase in volatility instead of that low 0:15:28.120 --> 0:15:31.160 volatility up into the right market that we've been in 0:15:31.240 --> 0:15:32.360 for the last two years. 0:15:32.680 --> 0:15:36.000 Love the eighties metaphors. Is this a nineteen eighties moment 0:15:36.080 --> 0:15:37.000 for you, Laurie? 0:15:37.800 --> 0:15:37.960 Oh? 0:15:38.000 --> 0:15:40.360 Look, I do agree that we're going to have more 0:15:40.400 --> 0:15:42.720 of that volatility, and I think one thing that makes 0:15:43.040 --> 0:15:47.080 things so challenging is just this idea of animal spirits 0:15:47.120 --> 0:15:49.840 being so strong post election and taking us into the 0:15:49.880 --> 0:15:52.480 new year, and so on the one hand, we do 0:15:52.520 --> 0:15:54.560 think that those good vibes get us off to a 0:15:54.600 --> 0:15:57.400 good start. We heard a lot about companies in particular, 0:15:57.960 --> 0:16:01.280 just seeing activity being frozen quarters and months ahead of 0:16:01.320 --> 0:16:03.360 the election, so we expect some of that to be 0:16:03.480 --> 0:16:06.960 unlocked and to really give us some good vibes. And 0:16:07.000 --> 0:16:09.800 we've also seen consumer sentiment improve post election, and that 0:16:09.880 --> 0:16:13.880 is something that's very normal after elections, including changings of 0:16:13.920 --> 0:16:17.040 the guard. I do sort of sympathize with that possibility 0:16:17.080 --> 0:16:18.880 of the prince market. I think that one of the 0:16:18.920 --> 0:16:22.360 things that's tough for forecasters in twenty twenty five is 0:16:22.400 --> 0:16:24.240 that you know, we all put out forecasts and we 0:16:24.320 --> 0:16:27.480 have to articulate a base case, but the bear case 0:16:27.480 --> 0:16:30.400 and the bull case sort of the tails around that forecast. 0:16:30.720 --> 0:16:33.680 It seems like those are higher probability on both sides 0:16:33.720 --> 0:16:36.040 of the equation, and those tales are just fatter in 0:16:36.120 --> 0:16:39.120 the new year. And so I think the idea of 0:16:39.160 --> 0:16:42.240 you know, kind of twelve month visibility, I'm not entirely 0:16:42.280 --> 0:16:44.240 sure that we have it right now, to be honest, 0:16:44.280 --> 0:16:46.360 I think we do our best as forecasters, but we 0:16:46.440 --> 0:16:48.680 have to admit that things are going to be changing 0:16:48.760 --> 0:16:50.640 quite rapidly in the year ahead. There's going to be 0:16:50.720 --> 0:16:53.760 policy developments out of DC, and I think Cameron hit 0:16:53.760 --> 0:16:55.880 the nail on the head in terms of stretched sentiment 0:16:55.920 --> 0:16:59.760 and stretched valuation, and those things can last. It's very 0:16:59.760 --> 0:17:02.240 hard to predict exactly when they pop out, but they 0:17:02.280 --> 0:17:04.920 do tend to invoke some pain on the other side, 0:17:05.320 --> 0:17:07.399 and I think that makes it very very tricky to 0:17:07.480 --> 0:17:08.720 time everything next year. 0:17:09.040 --> 0:17:11.040 So if we have this kind of froth in the 0:17:11.080 --> 0:17:14.240 market right now, this lack of clarity, what do you 0:17:14.320 --> 0:17:18.040 need to see, Cameron to bring more clarity? What are 0:17:18.080 --> 0:17:20.119 you going to be looking for in the next couple 0:17:20.119 --> 0:17:22.119 of months for us. 0:17:22.160 --> 0:17:25.359 It all comes down to earning sestiments, and if you 0:17:25.400 --> 0:17:28.600 look at what has been the key underpinning driver of 0:17:28.640 --> 0:17:31.160 the last two years of the bull market has been 0:17:31.200 --> 0:17:35.159 that twelve months forward earning sestiments continue to rise. And 0:17:35.200 --> 0:17:37.800 we think in the next month, when we start the 0:17:37.920 --> 0:17:41.520 fourth quarter earning season at the end of January, we're 0:17:41.520 --> 0:17:44.520 going to start putting some of these earning vestments to the. 0:17:44.520 --> 0:17:47.480 Test, because this is the first quarter that you had. 0:17:47.320 --> 0:17:51.200 The expectation that the four ninety three, those non NAG 0:17:51.320 --> 0:17:52.360 seven names. 0:17:52.320 --> 0:17:54.000 Will really start picking up the. 0:17:54.000 --> 0:17:57.679 Slack and earnings growth and pulling their weight. The question 0:17:57.880 --> 0:18:00.399 is is that a bar that's too high. What you 0:18:00.520 --> 0:18:02.960 have in the four ninety three going into next year 0:18:03.040 --> 0:18:06.960 is a big reacceleration in earnings growth, and so we. 0:18:07.000 --> 0:18:08.920 Have to ask the question of can that. 0:18:09.040 --> 0:18:12.119 Part of the market truly deliver or are we still 0:18:12.160 --> 0:18:15.280 having to fall back on this small subset of MAG 0:18:15.359 --> 0:18:18.320 seven names that have been such a key underpinning of 0:18:18.359 --> 0:18:21.600 the overall earnings estimates. So we're watching that twelve month 0:18:21.680 --> 0:18:25.159 forward number on EPs estimates very closely because if that 0:18:25.320 --> 0:18:28.680 starts the flatten oute market returns likely flatten out as well. 0:18:29.040 --> 0:18:32.960 We're speaking with Cameron Dawson, the chief investment officer at 0:18:33.040 --> 0:18:36.159 new Edge Wealth, and Lori Calvacina, head of US equity 0:18:36.200 --> 0:18:39.760 strategy at RBC Capital Markets. Laurie, how do you view 0:18:39.800 --> 0:18:42.800 the earnings backdrop heading into twenty twenty five? What do 0:18:42.880 --> 0:18:43.600 you need to say? 0:18:44.440 --> 0:18:47.160 Well, look, I think Cameron raised some excellent points, and 0:18:47.400 --> 0:18:49.680 if I think about, you know, the earnings environment, I 0:18:49.720 --> 0:18:51.800 would say sort of three things have been coming up 0:18:51.800 --> 0:18:55.200 in my conversations. I am looking for two seventy one 0:18:55.240 --> 0:18:59.000 on smp EPs next year. The consensus is about two 0:18:59.119 --> 0:19:01.639 seventy five, so we're a little bit below, you know, 0:19:01.720 --> 0:19:04.480 kind of that bottom up consensus, but kind of putting 0:19:04.520 --> 0:19:07.359 that aside, you know, I would say three things is 0:19:07.840 --> 0:19:10.440 number one. If you look at this past year twenty 0:19:10.480 --> 0:19:13.080 twenty four, there was an enormous amount of download guidance 0:19:13.080 --> 0:19:16.240 that happened before reporting season actually kicked off, So companies 0:19:16.280 --> 0:19:19.159 really tried to keep the bar very low, and I 0:19:19.160 --> 0:19:21.080 think that set them up very well for this year. 0:19:21.119 --> 0:19:23.399 So I'm very curious to see if companies try to 0:19:23.440 --> 0:19:26.480 pull that rabbit out of a hat again in twenty 0:19:26.520 --> 0:19:29.239 twenty five. So you know, I'm not expecting, frankly, the 0:19:29.280 --> 0:19:31.720 tone to be all that great when that reporting seasons 0:19:31.800 --> 0:19:34.480 kicks off in late January. The second thing is I 0:19:34.480 --> 0:19:37.040 want to see what companies say about the dollar. We've 0:19:37.080 --> 0:19:39.480 seen an increase in the dollar a year over a year, 0:19:39.560 --> 0:19:42.280 and that does tend to push earning's revisions down. We 0:19:42.359 --> 0:19:44.800 haven't really seen that yet, but it does tend to 0:19:44.840 --> 0:19:47.760 hit most sectors in the market, aside from things like financials, 0:19:47.800 --> 0:19:50.840 reads and utilities. So we're watching to see if we 0:19:50.880 --> 0:19:53.520 might get some truing up there. And then the last thing, 0:19:53.600 --> 0:19:55.560 you know, that I'm really focused on when we get 0:19:55.560 --> 0:19:58.480 that January reporting season starting up is what are companies 0:19:58.520 --> 0:20:01.320 saying about margins and costs. Bloomberg does a great job 0:20:01.440 --> 0:20:04.080 of the Bloomberg Intelligence folks of tracking the bottom up 0:20:04.119 --> 0:20:06.720 sell side consensus estimates, and what they're showing in their 0:20:06.760 --> 0:20:09.640 margin stats is that we've been seeing twenty twenty five 0:20:09.680 --> 0:20:12.879